The Export-Import Bank And The Art Of Picking Losers

How is bankrolling of dictators, subsidizing authoritarian regimes, propping up green energy and destabilizing entire industries good for growth?

By the end of June Congress will have to resolve whether the Export – Import Bank of the United States (Ex-Im) should be re-authorized. If Congress does nothing the authorization will expire but a vote could save the bank. The fate of the bank is important test that will show whether Congress is on the side of taxpayers, and basic market principles, or special interests that are capable of bending markets in their direction.

Presidential candidate Hillary Clinton is advocating re-authorization while most Republican presidential candidates are opposed. The Ex-Im Bank claims that it “fills the lending gaps for small businesses in international trade” and therefore “grows American jobs.” But critics hammer Ex-Im for cronyism, waste and outright corruption.

Ex-Im lending has soared with a 248 percent increase in lending from 2008-2013. Now, taxpayers have total exposure of nearly $140 billion in the Ex-Im loan portfolio.

The number one share of importer benefits, $7.21 billion, flowed to Pemex – the leading oil conglomerate in Mexico (owned by the Mexican government).

The number one share of exporter benefits, $60 billion, went to Boeing. In fact, Boeing received one-third of all export activity.

Widespread institutional corruption including credit for unqualified companies, i.e. Solyndra, lack of internal controls including heavy salary spikes and bonuses to admitted employee fraudsters; lending support to dictatorial/authoritarian governments around the world; and ‘gaming of the system’ by U.S. companies functioning as importer and exporter on same transaction.

Lack of basic transparency - $25.6 billion in activity under headings of “Undisclosed” or “To be determined.” $1 billion of these opaque transactions were in Russia.

Even small business transactions were questionable. In the electronic motorcycle manufacturing space, Zero Motorcycles in California has received local, state, federal and Ex-Im grants, credits, sales rebate subsidies and financing amounting to well over $5 million. It may have helped Zero, but its competitors went out-of-business.

Our analysis shows Ex-Im exists for big business with $1 billion plus flowing to each of the top 15 domestic exporters. That’s a massive financing subsidy to companies like General Electric, Bechtel, Exxon Mobile, Westinghouse, Caterpillar, and other multi-national powerhouses. And it bankrolled their transactions with many foreign state-owned companies in some troubling spots in the world: Bangladesh, Russia, Colombia, Indonesia, Egypt, Papa New Guinea, India, Saudi Araba, United Arab Emirates, China and others.

The questionable taxpayer subsidies are not limited to Boeing. Many other large corporations like Halliburton Energy Services, Caterpillar Co, and Schlumberger receive subsidies via the bank. These three companies collectively received $3.5 billion in Ex-Im financing since 2007. During this period, all three admitted doing business in Iran through subsidiary businesses circumventing sanctions against Iran. After these transactions came to light in 2010, two of the three companies ended Iranian dealings.

The ‘gaming-of-the-system’ on the importer and exporter side is widespread. For example, Ex-Im provided $3 billion in seven year financing to Exxon Mobile to help build the Papa New Guinea Liquefied Natural Gas Project (PNG-LNG). Exxon played both sides. Exxon essentially imported to itself through a subsidiary: Esso Highlands Ltd. Today, Exxon Mobile discloses themselves as a stakeholder, co-venture partner and day-to-day operator of the $19 billion PNG-LNG facility alongside Papa New Guinea state-owned enterprises. How generous of them to aid the developing world.

Ex-Im can’t even answer Congressional inquiries regarding the level of agency fraud at the bank. In fact, there are about 40 current Inspector General fraud investigations ongoing. For example, Johnny Gutierrez, an Ex-Im Loan Specialist, pled guilty on April 22, 2015 of accepting up to $78,000 in bribes in return for recommending the approval of unqualified loan applications to the bank, among other misconduct. During this period, Ex-Im gave Gutierrez nearly a 20 percent pay hike and paid-out thousands in performance bonuses.

And then there’s foreign aid to potential competitors and adversaries: $3.4 billion funded Chinese companies owned by the Chinese government. Is helping China direct more money to its military – and its harassment of Japan – good for the global economy? Or is the Ex-Im’s “One Competitor” policy something weak-minded capitalists should just accept?

The case against Ex-Im boils down to a simple principle: when government is empowered to pick winners and losers - often times the losers flourish and the winners are punished. Our analysis suggests our economy would be far more competitive if government got out of the “business” in which it is so easily defrauded.